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The effects of the Russian invasion of Ukraine on commodity prices have prompted a wave of upward revisions in bank and consultancy forecasts for this year’s trade surplus. The new estimates in many cases show the prospect of a new record balance in 2022, with projections reaching more than $80 billion. An expected slowdown in the global economy, the greater appreciation of the real against the dollar and the fall in the terms of trade, however, differentiate this year’s scenario from that of 2021, highlight experts, which maintain some projections with a surplus still below $50 billion in the year, although they also followed the upward trend of revisions after the war started.
In a scenario released this month, already considering the effects of the war, Itaú Unibanco updated its trade surplus projection in 2022 to $74 billion from $67 billion. With a similar estimate, Bradesco projects $75 billion, compared to an estimate of $61 billion published in February. If the banks’ projections materialize, the trade balance will have a new historic milestone this year. Last year, with export values driven mainly by the rise in iron ore, it reached a record $61.4 billion, according to the Secretariat of Foreign Trade (Secex).
AC Pastore has estimates that indicate even larger surpluses in two scenarios. A more optimistic one, with a surplus of $95 billion for the year, for a scenario in which the war would affect world growth, but the volume of global trade would not be so impacted and would grow 6% in 2022, as estimated by the International Monetary Fund, at the beginning of the year, explains Paula Magalhães, chief economist at the consultancy. In an “alternative” scenario in which the impact of the war on trade is greater, the estimated surplus for the Brazilian trade balance drops to $85 billion. Both scenarios consider calculations based on Secex criteria.
The projections, says Ms. Magalhães, consider favorable effects on the balance of the high prices of commodities exported by Brazil, mainly foodstuffs. The various factors that influence the estimates, such as new supply shocks, whether due to the war or due to new waves of Covid in China, she says, are being monitored and the estimates are expected to be readjusted as the conflict evolves and its effects.
Bradesco’s new estimate also considers the effects of commodity prices. In a release by the bank, economists Rafael Martins Murrer and Fabiana D’Atri point out that until the third week of March, the balance accumulated a surplus of $10.1 billion, a result about $3 billion above the same period in 2021. The war in Ukraine, which began on February 24, they say, intensified the upward movement of commodities such as oil, natural gas, wheat, nickel, soybeans, corn and iron ore.
The bank points out that Brazilian trade is likely to be impacted by the Russia-Ukraine conflict, but direct exposure to these countries is low. The biggest exposure to Russia, ponder the bank’s economists, is in fertilizers, since we import about 85% of all fertilizers consumed domestically and 25% of this total is of Russian origin, used mainly for soy planting. This, however, would be a risk for the next season, since the current one has already been planted, even though there is a stock of the product that was not used in the current season.
Some experts in foreign trade, however, signal caution in relation to the effects of rising commodity prices. For Silvio Campos Neto, with Tendências, there is expectation of a more dynamic performance of exports, although imports are likely to feel part of the global inflation. Tendências highlights the high uncertainty regarding the duration of the conflict and its consequences. For now, the surplus expected for this year, he says, is $61.8 billion, in an estimate already revised against the $58.5 billion projected until the beginning of March.
The scenario for this year has important differences compared to last year, when iron ore prices reached the historic peak and ensured a record trade surplus, says economist Livio Ribeiro, partner at the BRCG consultancy.
José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), highlights that one of the differences this year is in import prices, which began to grow more rapidly in the last months of 2021 and maintain a strong pace at the beginning of 2022, which should pressure imports upwards and the balance downwards. For him, the effects of commodity prices on exports can also be restricted, in part because higher base 2021 iron ore prices limit average price growth this year and could see export volume affected by China’s slowdown. Soybean prices have increased, but we will have limited shipments due to the crop failure, he says. “And we also don’t know if oil will have the breath to continue rising or stay at current prices.” New preliminary estimates by the AEB point to a surplus of $49 billion for the year. The initial projection was $34.5 billion.
Lia Valls, a research associate at the Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre-FGV), highlights the declining trend in terms of trade, more recently accentuated by the faster rise in prices for imports than for exports. The terms of trade in the first two months of the year, she points out, were 13.5% below the same period last year, according to data from the Indicator of Foreign Trade (Icomex) released by Ibre.
Average import prices in January and February of this year grew 33.9%, twice the rate of 15.9% in which average export prices fluctuated. “And the rise in import prices is not restricted to commodities, but also affects non-commodity items,” she points out. According to Icomex data, average commodity prices of imports, in the same period, increased 51.8% while non-commodities grew 32.2%.
These high import prices also in non-commodity goods make the debate more complicated and require more care, points out Mr. Ribeiro. “The memory of this import acceleration tends to be longer as it reflects the pass-through of costs in industrial goods.”
When this is added to the appreciation of the real against the dollar and a deceleration of the world economy expected as a result of the war, although the impact is still uncertain, says Mr. Ribeiro, it is not very obvious that this set of vectors is positive for the balance. More contained than the market average, BRCG projects a surplus of $45 billion in revision in the last week, compared to $38 billion in the previous estimate.
The more recent global prices rise, as in wheat and oil, says Ms. Valls, adds to ongoing pressures since 2021 and represents new cost shocks to inflation in Brazil. At the same time, she says, there is a global trend towards protectionist measures to discourage exports and ensure food security, which could also lead to further supply shocks. She cites Argentina, which raised export taxes on soybean meal and oil, and Indonesia, with restrictions on the sale of palm oil.
Source: Valor International